Welcome to the fourth quarter 2015 earnings release conference call. [Operator Instructions] I would now like to turn the conference over to Michael Hays, Chief Executive Officer. Please go ahead, sir.

Michael Hays

Thank you, Tia, and welcome everyone to National Research Corporation's fourth quarter and yearend conference call. My name is Mike Hays, the company's CEO; and joining me on the call today is Kevin Karas, our Chief Financial Officer.

Before we continue, I'd ask Kevin to review conditions related to any forward-looking statements that may be made as part of today's call. Kevin?

Kevin Karas

Thank you, Mike. This conference call includes forward-looking statements related to the company that involve risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the facts that could affect the company's future results, please see the company's filings with the Securities and Exchange Commission.

With that, I'll turn it back to you, Mike.

Michael Hays

Thank you, Kevin, and again, welcome everyone. Our 2015 financial performance can be summarized as strong new sales across our core portfolio of products, offset by reductions in contract value in our health risk assessments and home health offerings, which resulted in single-digit topline revenue growth for the year 2015.

Let me have Kevin dig into the fourth quarter and yearend results, before we turn towards the year ahead. Kevin?

Kevin Karas

Thank you, Mike. Net new sales of $6.4 million were added in the fourth quarter of 2015 compared to $6.5 million in the fourth quarter of 2014. Over the most recent four quarters, our net new sales have totaled $24.1 million compared to $22 million for the previous four quarter, an increase of 10%.

Our total contract value for the fourth quarter 2015 ended at $110.2 million, which includes a decrease in contract value of approximately $2.3 million, resulting from our clinical workflow product divestiture. Subscription-based agreements grew and represented 89% of our total contract value at yearend.

Fourth quarter 2015 revenue was $26.4 million, an increase of 5% over the fourth quarter of 2014. Consolidated operating income for the fourth quarter 2015 was $7.7 million or 29% of revenue compared to $6.4 million or 26% of revenue for the same period last year. Total operating expenses for the fourth quarter remained the same at $18.7 million in both 2015 and 2014.

Direct expenses increased to $11.4 million for the fourth quarter of 2015 compared to $10.8 million and for the same period in 2014, primarily attributed to increased variable direct expenses as a result of our revenue growth in the quarter. Direct expenses as a percent of revenue for the fourth quarter were 43%, both in 2015 and 2014. Direct expenses for the full year of 2015 ended at 43.6% of revenue and are expected to decrease to 43% of revenue for the full year in 2016.

Our selling, general and administrative expenses decreased to $6.3 million or 24% of revenue for the fourth quarter of 2015 compared to $6.9 million or 27% of revenue for the same period in 2014. SG&A expenses were 26.8% of revenue for the full year in 2015 and they are expected to be 26% of revenue for the full year of 2016.

Depreciation and amortization expense for the fourth quarter was $1 million and represent 4% of revenue, both for 2015 and for the fourth quarter of 2014. Depreciation expense as a percent of revenue is expected to continue at approximately 4% of revenue for the full year of 2016.

Our other income in the fourth quarter of 2015 included a $1.1 million gain from the sale of our clinical workflow product in December. The provision for income taxes totaled $2.8 million for the fourth quarter of 2015 compared to $2.3 million for the same period in 2014.

Our effective tax rate was 32.4% in the fourth quarter compared to 35.7% in the fourth quarter of 2014. The decrease in the effective rate was due to the favorable impact of a reversal of a capital loss valuation allowance in the fourth quarter that was recorded earlier in 2015. The effective income tax rate for the full year of 2015 was 35.6% and is expected to remain constant at 35.6% for the full year of 2016.

Net income for the fourth quarter was $5.9 million in 2015 compared to $4.1 million in 2014. And our combined non-GAAP diluted earnings per share were $0.24 in the fourth quarter of 2015 compared to $0.17 in 2014.

With that, I'll turn the call back to Mike.

Michael Hays

Thank you, Kevin. Let me make a few comments before we go to your Q&A session. Notwithstanding our single-digit topline revenue growth for the year 2015, which we're all aware is far below our desired performance, we feel our core business is performing very well.

The basic contracts value going into 2016 is largely comprised of our core product portfolio and our exposure to our non-performing products have been minimized. By all indication, the market dynamics remain highly favorable for our product portfolio, and as well our offerings remain highly differentiated at point-of-sale. We're providing material capital against ensuring that that uniqueness remains far ahead of all others.

We continue to enjoy an enviable business model of recurring revenue and expanding margins, which generates material free cash flow from which we will continue to invest in our future and provide returns for our shareholders.

Operator, with that, I would like to open the call to questions, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Ryan Daniels with William Blair.

Ryan Daniels

Mike, just a follow-up for you on the weakness you're seeing in the health risk assessment and some of the home health business. Can you offer a little bit more color on what's driving that? I'm curious if it's anything particular to those end-markets or if it's just a de-emphasis internally? That's question number one. And then, number two, maybe a little bit better feel for as we look for 2016, what portion of revenue those two areas might contribute?

Michael Hays

Let's handle them separate, because the drivers are a little bit different between health risk assessments and the clinical workflow product within the home health sector. First, within the health risk assessment the headwinds that we experienced, actually for the past few years, is a declining enrollment for Medicare Advantage.

As you may recall, our health risk assessment product is sold to payers, which have Medicare advantage contracts. And depending upon the attractiveness of the reimbursement of the rates, we'll see Medicare advantage enrollment increase or decrease. Over the last couple of years, it has decreased amongst our client base.

And because that particular side of our business is transactional, meaning, the more enrollees, the higher the revenue; the less enrollees in Medicare advantage, the lower the revenue. We've been on the negative side of that particular picture. So we have lost a significant amount of previous contract value over the last couple of years, because of Medicare Advantage less enrollment amongst our clients. So pretty much market condition driven by reimbursement rates for the Medicare Advantage product.

Some distinct from that, we've had quite a bit of headwinds in the clinical workflow product, which is one of the products within the OCS business that we purchased several years ago. While the home health caps business is fairly robust, the clinical side is not nearly as such. I think part of that is it wasn't really in our DNA to understand how to maximize revenue within that particular product and that we have divested in December.

So we're out of that business. So obviously that will be a one-time step down in terms of contract value, which Kevin alluded to, but won't provide a negative pressure on revenue growth on a go-forward basis.

Kevin Karas

So to second part of your question, at the beginning of 2015 the non, what we call, non-core products, meaning HRAs and the clinical workflow product, those represented 7% of our contract value. So 93% of our contract value at the beginning of 2015 was core products. Beginning of 2016, those non-core products represent 2%. So we go into 2016 with 98% of our beginning contract value being comprised of our, we call it, core offerings.

Ryan Daniels

And then, it sounds like some of your plans in particular pull back on Medicare Advantage. Have you guys looked at trying to stimulate growth in that segment by selling more to providers? I know we're seeing providers across the country start to launch these plans and I'm --

Michael Hays

In fact, we are taking a pretty hard look. The health risk assessment does provide the ability to understand risk among the defined population. So if you think about care organizations and even healthcare providers that have a large number of employees within their own employment base, obviously, they have the need to understand what that capitated audience really looks like from a risk perspective.

So we are towing around with how best to take that to market and we're also trying to figure out whether there is an HRA product or an offering for state exchanges. As you know very well, Ryan, the risk of the payers this last year, they've lost hundreds and hundreds of millions of dollars taken on newly insured individuals without having retrospective claims data.

HRA at often times can provide that kind of perspective and perhaps help them intervene sooner, so as to minimize the loss. So I think there is a couple of years that might work for HRAs, but we don't have any of that baked into our plan for 2016, but we're taking a look at it.

Ryan Daniels

And, Kevin, a specific question on the balance sheet. It looks like accounts payable really jumped up in the fourth quarter. I think it jumped up about 3x versus normal levels. So is there anything in particular there or is that just some timing issues?

Kevin Karas

Included in there, Ryan, its accounts payable and accrued expenses. So the major increase is related to the accrual for the special dividend that we announced in fourth quarter that was paid in January.

Ryan Daniels

And then, one last one, just maybe big picture as well, obviously, a good year of net new contract sales in some of the core offerings. I'm curious, if there is anything in particular there that's been resonating or drove that effectively double-digit increase in net new sales? Just some more color from you there?

Michael Hays

It was really across the board. We saw positive growth in all of the products to which we define as core. So I really can't single-out any one over another. It seemed to be across the board.

Operator

It looks like there are no further questions. I'll turn the call back to you.

End of Q&A

Michael Hays

Thank you. Well, let me thank everybody for their time today. And Kevin and I have always looked forward to reporting our progress next quarter. We'll talk to you then. Thank you.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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